Not All Additional Insured’s Are Equal
If your company does work for other businesses, then you’re used to receiving requests for proof of your insurance, certificates including the “Additional Insured” clause. Normally you supply a certificate and that takes care of it. What happens when your customer comes back and wants more? What if they refer to the contract for the job and tell you your certificate is incomplete and needs to provide additional paragraphs (or pages!) of special wording to comply? Is it reasonable? Can you still get paid? Are there any other potential consequences to beware of?
The answer varies, depending on the verbiage in the contract you’re being asked to sign, but it can range from no big deal… all the way up to putting your policy on the hook to give MORE coverage for the Additional Insured than it does for you as the primary policyholder. Agreements or contracts written by your customer that contain Additional Insured requirements are all Risk Transfer efforts designed to move as much exposure as possible from that customer back over to its vendors, i.e. you, so you should be aware of what you’re being asked to go along with.
My customers ask me all the time, “can I comply with the insurance requirement in this contract”, and sometimes the answer is “no.” Why? When the requirements are out of date or misworded, or referencing insurance forms that have been out of circulation for decades, and/or ask for liability limits so high that only large companies can afford them. However, I tell them they may still find out the insurance they already have MIGHT be accepted if they just submit it and see if their customer accepts it.
A word of caution: customer acceptance of your insurance does not necessarily mean you are in compliance with the contract, it just means you can get paid for the work you’re doing at present. Deciding how to interpret and respond to a contract that might be poorly constructed is a valid concern, but it’s separate from the question of “how do I get paid”, and more of a legal strategy, and for that, you’ll want to talk to your attorney.
Here’s what you should know: most standard General Liability policies will include a basic Blanket Additional Insured endorsement. This essentially says that if you have a contract with someone requiring they be Additionally Insured, then they are. The idea is that, while you are providing ongoing operations for your customer, if your customer gets sued due to your negligence, then your insurance will indemnify your customer. Standard stuff. No extra cost and the certificate confirming the Additional Insured status is quick to issue.
However, that doesn’t address the EXTRA clauses your customer’s contract may contain, that are designed to transfer MORE risk, MORE burden back over to its vendors, like you.
- Making your insurance primary (first to have to pay) even in cases where your Additionally Insured customer is partially negligent or even completely negligent (“Primary and Non-Contributory wording”)
- Restricting your insurance from seeking reimbursement from the Additional Insured if your insurance pays out first due to an agreement, even when your customer is negligent (“Waiver of Subrogation”)
- Making you responsible for your customer’s/Additional Insured’s premises or job site you worked on AFTER all your operations and services there have ended (“Completed Operations”)
- Customer/Additional Insured requiring 30 days written notice directly from your insurance company if any condition of your policy changes or cancels
- Customer/Additional Insured requiring that your insurance plan’s full policy limit is guaranteed to be fully available, even if other claims have already been paid that year (“Per Project Aggregate”)
These clauses can be costly to get your insurance to comply with because insurers know that compliance equals taking on a whole lot more risk.
We see these requests included on customer contracts all the time, but what’s interesting is that they’re not always enforced. What we encourage our insureds to do is to provide a certificate including whatever type of Additional Insured they already have included in their policy, and then see what kind of response their customer comes back with. Many times we will see a much less burdensome level of coverage accepted than what is spelled out in whatever boilerplate their customer may have used to create its agreement.
Or, if you know you’re going to have a lot of customers that have burdensome requirements like these, and they pay well enough to justify it, you can upgrade your policy to include all of that wording by default. That’s an option too.
So in the end, what’s reasonable is often defined by what’s accepted. And it behooves any business to push back a bit when confronted with insurance requirements that are outside what they’ve already found to be commonly accepted. We help our clients navigate this daily, and the relief usually starts just with the knowledge that they CAN push back and likely reach a compromise.
If you’re looking at a set of insurance requirements that seems burdensome or unreasonable, give us a call (800-530-4448), we can help you navigate.